Closing Bell - Closing Bell Overtime: Adobe CEO On Earnings, Guidance; Citi’s 2025 Playbook 12/11/24

Episode Date: December 11, 2024

Today's show dives into Adobe's latest earnings with insights from Chair and CEO Shantanu Narayen. Schwab Senior Investment Strategist Kevin Gordon and Brooke May, managing partner at May Evans Wealth, hit key trends shaping the market action, while Citi's Drew Pettit unpacks the bank’s 2025 playbook for U.S. equity strategy. Plus, updates on the anticipated ServiceTitan IPO and Sarah Levy, Betterment CEO, on markets and retirement. Morgan goes deep on the intersection of venture capital and defense technology. 

Well, that's the end of regulation. California Resources Corporation ringing the closing bell at the New York Stock Exchange. Couch Base doing the honors at the NASDAQ. A historic day for the NASDAQ. Closing above 20K for the first time ever. The S&P 500, though, falling just short of a new high itself. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Yeah, and communication services leading the market higher thanks to Alphabet's ongoing surge. Healthcare, the biggest sector loser, though, because of UnitedHealth, which weighed heavily on the Dow. Investors now awaiting earnings from Adobe, which are due to be released in just a few minutes. And chair and CEO Sean's new Narayan

is going to break down those numbers exclusively with us before he dials into the analyst call. But first, let's get right to the market action. Joining us now is Schwab Senior Investment Strategist Kevin Gordon and Evans May Wealth Managing Partner Brooke May. It's great to have you both here. Kevin, you're sitting with us on set. I'm going to kick this conversation off with you as we do have 20K on the NASDAQ. It is big tech that's really been leading the charge here recently. And it seems like we've seen the shift back into the leadership position for the biggest names in the market.

Does that continue? You know, it's interesting. It feels like this has been something that's been going on for a while. If you were to read into the narrative and some of the feel out there and what's been reported. But really, this has only been going on for just a couple of weeks. And I think what's been interesting is that from that mid-July peak for tech and tech related, if you want to use the MAG-7 as sort of your barometer for that, since really the beginning of November, there hadn't really been any progress for that group. It took a while for them to get back to their prior, you know, mid-summer all-time high. At the time that that was happening, the rest

of the market had, you know, a pretty significant rally, inclusive of industrials and financials, which I think were probably the poster children for that. So this has only been a phenomena for the past couple of weeks, but is emblematic of an environment that we think has been in place for a while, but probably persists going into 25, where you do get these really aggressive rotations into and out of sectors, even within groups like the MAG-7. What's really interesting is even though it's been a great run recently for communication services and tech, the dominant performer in the Mag7 over the past couple of weeks, really over the past month, has been Tesla. That's been a disproportionate mover in that group. And you've had other names

sort of down at the other end of the spectrum being NVIDIA, which have been sort of the laggard. So you're not getting a sort of complete picture where every single company in a group like that is doing well. But we think those kinds of aggressive sort of rotations, either across groups or across sectors, but also within sectors, probably continues. It's interesting, too, because it's Tesla in the public markets, it's SpaceX in the private markets. You could call Musk company, Musk companies really the other Trump trade. But but, Brooke, the fact that we got CPI today, basically unchanged month over month, at least core CPI, but but still stronger than the Fed would like to see markets 100 percent pricing and the fact that we get a cut next week.

But how does this position us for 2025, especially as you do have stocks at all time highs? It is a little concerning because it's the fourth straight month that CPIs come in at 0.3%. And so we're looking at it a little bit more deeply and kind of peeling back the onion to see what are the culprits within that figure. And shelter, shelter is an issue. Shelter is up 4.7% year over year. And that factor doesn't affect everyone. However, food prices do. And food was up 0.4% month over month. So we're looking at CPI and we know that if individuals can go to the grocery store and at the cash register feel a little relief, sentiment is going to improve.

Okay, Kevin, taking a step back, looking at 25 now, which do you think is a more convincing theme for investors to focus on the overall good position of the U.S. economy, U.S. innovation or the high valuation of the S&P stubbornness of inflation? Oh, can I answer both? I would say both in the sense that, you know, it is it is a remarkably unique environment where you do have relatively strong economic momentum, but also market momentum heading into 25. But you also have the potential for some pretty significant disruption from a volatility backdrop perspective from everything coming out of Washington in terms of policy, whether it's related to tariffs, whether it's related to immigration.

But from a valuation and a sentiment perspective, we do think that's probably the biggest risk right now to the market. And across many metrics, you could look at price-to-sales, price-to-earnings, both forward and trailing. We like to look at a five-year normalized PE, which takes four and a half years of trailing earnings, but also takes two quarters looking ahead, gives you a nice blended rate for earnings. And if you use that as your earnings metric and put the S&P's price over it, you get to levels that you really haven't seen or have only seen in 2021 in the late 1990s. So automatically, that would probably, you know, it's human nature to think, OK, pretty

bad periods for the market after that, you know, in those two time frames. But there is still, number one, room probably for multiples to expand a little bit more if you still have a lot of optimism and a lot of strength in the U.S. market. I mean, number two, stretched valuation and stretched sentiment is never a reason that the market just turns lower and rolls over. You need some sort of negative catalyst to tip you in that direction. We would argue it's probably something policy related, but you can stay in that exuberant or euphoric territory for a pretty long time. OK, Adobe results are out. We are going through them.

In the meantime, Brooke, speaking of catalysts, what is the next catalyst that might broadly influence markets, maybe beginning of 25? Aftershocks of holiday sales, first executive orders out of the Trump administration? We're looking at CEO sentiment right now more than we have historically. When CEOs have been surveyed, their outlook is stable, and that was pre-election. We think in this next read coming up that there's going to be more optimism. When CEOs have been surveyed, they've indicated that hiring is going to be flat. But really what we're looking at is where they're going to spend. And they've indicated they're going to spend 8% to 9% more on CapEx and R&D. They're going to spend 15% more on share buybacks

and about 7% more on dividend increases. That's a good environment for investors. Plus, we've got the tailwind of potentially deregulation, lower corporate tax rate, and a labor market where it's easing for hiring conditions. Okay. Brooke May and Kevin Gordon, thank you both for kicking off the hour with us with a record close for the NASDAQ. Well, customer relation management software company Service Titan is expected to price its IPO just any moment from now. And Leslie Picker has the details and what to watch. Leslie. Hey, Morgan.

Yeah, I'm told this one likely to price at the high end or above the range Service Titan boosted yesterday. Greater than expected demand is notable here, but the pricing is still going to be a so-called down round, meaning it will be lower than its most recent private round from 2022 and the two rounds before that. Now, due to some unique structuring in Service Titan's latest private round, this will trigger something it calls a compounding ratchet. What this means is the company will have to issue more shares, diluting some investors while making certain venture investors whole. And the compounding element, which is very unique, I don't think I've ever seen this structure before,

means that the hurdle price goes higher the longer service Titan waits to go public. Pricing and timing indicate pretty incremental dilution though, just around 1% according to estimates. But in other words, this is unlikely that the deal kind of bursts open the tech IPO window wide open after a few dismal years, given that it was really a necessity

for service Titan to debut. However, there are private companies waiting in the wings that will be watching this deal very closely to see how it trades and whether it's a sign that there's appetite from public market investors out there, guys. All right, Leslie, thank you. Adobe earnings, as you mentioned, are out. Sima Modi has the number. Sima. A strong beat on the bottom line for the fourth quarter, John, $4.66, excuse me, $4.81 versus the estimate of $4.66. Revenue topping estimates at $5.61 billion. And then if we look at total digital media ARR, that is a slight beat on that number. And then if we look forward to Q1 guidance, slightly mixed earnings above estimates, revenues slightly below. We are looking at shares down to

about 5.4 percent. Looking forward to your interview, John. All right, Seema, thank you. And as Seema mentioned, Adobe CEO Shantanu Narayan is going to break down these results with us, an exclusive interview before he dials into the analyst call in just a couple of minutes now. But now let's turn to senior markets commentator Mike Santoli for a look at the push and pull relationships within this market. Mike. Yeah, John. Well, initially, just a couple of pushes higher. This is these big mag seven bellwethers, Alphabet and Apple. And I took it back three years to the end of 2021 because that was right before we got that 2022 downturn in the broader market that hit the Nasdaq and these stocks pretty hard. You see Alphabet in particular

just nosing above that earlier high from the middle part of this year. Apple had done so before. And this, to me, reflects investors essentially going back to these huge bellwether names that had rested for a few months, and then they can kind of grab them and play for a bit of kind of catch-up and exposure on the upside. Alphabet, by the way, also spent a brief amount of time at a discount

to the market. It actually still is at a slight discount valuation-wise. It's now catching back up as well. Now, whether this means we're re-narrowing, we'll have to see. Treasury yields are up today. The average stock was down today. Take a look at the relationship between the S&P 500 growth index and the value index. Now, there's been a lot of calls for a resurgence in value. People expect the economy to maybe accelerate and maybe the inflation to remain stickier, things like that. This is value here is still outperforming. But again, I take it from all the way back here to before that bear market. So all that outperformance was built up here in 2022 when the overall market was going down. Huge move higher by growth. So on a three year basis, this looks like it's, you know, pretty much in harmony. But growth is clearly where more of the

upside acceleration has been recently. So I'm not sure you want to necessarily lean too hard one way or the other, but there are some calls for mean reversion in favor of value on a shorter term basis, maybe when we get into the new year. Okay. Well, back to the Alphabet versus Apple chart. Interesting to me about these two that throughout the year, maybe a little longer than that, they've had some interesting resilience versus narratives versus Google that, boy, their lunch is going to get eaten in AI. They should have been in pole position, but they squandered it in Apple.

Boy, they're really not going to have a super cycle, and the latest iPhone really won't do well on AI, and yet here they are at all time highs. What to make of that? Exactly. And I think that also is kind of what provides the fuel for this extra move higher. If you look at names like Meta, they've been racing higher all year. They were already considered to be in that sweet spot. Naturally, the first half of this year, NVIDIA added two trillion dollars in market cap. And that was already kind of reflecting a lot of those fundamentals. So I think the way stocks go up is maybe things aren't as bad as people thought or if people felt underinvested once. In fact, these companies seem like they maybe are in better shape than we had expected. Again, I also want to make sure we

keep an eye on the sort of the mechanics, the behavioral aspect of this, which is what hasn't moved too much recently? Let me get a piece of that. Also, there's probably some political narratives being built into these as well in the last several weeks. You think? Yeah, just maybe. Everyone wants to be in favor of the incoming administration. Indeed. Mike Santoli, see you again in just a bit. Up next, an exclusive interview with Adobe chair and CEO Shantanu Narayan on the company's earnings beat before he speaks with analysts on the call. And later, Citi Research's director of U.S. equity strategy lays out the good, the bad, and the ugly scenarios for the market next year and where he sees the biggest opportunities

for investors. We have a big show straight ahead. Overtime's back in two. Welcome back. Adobe shares are lower right now in overtime, about 6% after Q4 numbers out just moments ago. The revenue guidance perhaps impacting the stock. Joining us now exclusively before the earnings call is Adobe chair and CEO Shantanu Narayan. Shantanu, welcome. So these numbers for Q4, better than expected on both digital media and digital experience. Give me your sense of what's going right here and your outlook for the next quarter, which some are seeing right now as conservative.

Well, John, it's great to be back on your show. And we had a phenomenal year by so many measures. 2024 was a record year, record revenue, record digital media, net new ARR, record in terms of the digital experience, subscription bookings. Acrobat continues to do exceedingly well, over 650 million monthly average users for that. We're monetizing AI in terms of what we've done with AI Assistant, the tiered subscription pricing and Creative Cloud. And so profitability continues to be something that we are, I think, uniquely positioned to deliver in addition to top-line growth. So first, I think as it relates to 2024, it was a great year and a very strong close to the quarter. I think just demonstrating the innovation that we've delivered and the ever expanding set of customers that we can address. I think as it relates to 2025 guidance, I've seen a

few other companies also, I think what nearly needs to be factored is the impact of FX because otherwise the underlying business is strong. And I think once people recognize that what we are referring to is what's happened with the FX rate, it actually is a strong guide for 2025 as well. Okay. So tell me more about that, because in that Q1 guide in particular, I think the street was looking for a little bit better than 5.7 billion revenue guide, and you got into a range of 5.63 to 5.68. Underneath that, I wonder if you can say more about the monetization of AI. I know it's taken you a while to work with those credits, get customers used to the process using them. How is that trending? What do you see as far as this funnel, this pipeline of more people within organizations having access to creative tools and how that leads to monetized

usage? I think it's going really well, John. And at our last analyst presentation, we talked about the multiple ways in which we are monetizing it. I'll start for a change with the digital experience where we have premium tiers. We drove record revenue. When you think about AP and applications and the fundamental data infrastructure that we provide for enterprises in terms of their customer experience management. We had record bookings cross 5 billion. So people recognize that the more I can automate how I deal with audiences, how I deal with campaigns, content creation in order to create variation. So we're monetizing it on the digital experience side. When you think about it with Acrobat, we have AI Assistant. AI Assistant continues to accelerate in terms of both the

adoption as well as the monetization. We introduced two new languages, support now for PDF in French and German. As we add more languages and as we add more specialized uses of Acrobat, things like contracts, things what you might do with scanned PDFs as well, we continue to believe that that AI monetization will also result. And when you think about digital media and what we are doing on the AI first application, Express had a really good quarter. We had thousands of new businesses

that are adopting Express. That's clearly an AI first application. When you think about Creative Cloud and what we are doing in terms of the tiering of the pricing and the value that we're providing. You know, we have 16 billion generations, and that's accelerating. And so that value is there. And finally, we talked about we're going to be offering a new Firefly offering, which will include our video models. And, you know, we will monetize that as well. So really pleased, John, with how we're doing. So, yeah, you mentioned that at the same time that OpenAI

Sora is out. The dollar is uncommonly strong, and we should probably talk more about that. Is the AI monetization just as strong outside of the U.S., outside of North America as you see it in the U.S.? Well, the AI monetization, John, really has more to do with value than anything else. So, yes, I think if you think of the adoption that's actually happening, when we think about Creative Cloud and the number of subscribers that we're getting for Creative Cloud, emerging market continues to be a real tailwind and a position of strength for us. So, yeah, I think, you know, anybody who has access to computing and has a creative idea, they're going to be willing to pay for the innovation that we provide. Shantanu, it's great to have you on.

It's amazing to me that the deal with Figma, the nearly $20 billion deal with Figma, was scuttled a year ago this month. As we have a new administration coming in come January and just a flurry of CEOs and investment bankers this week alone saying that M&A activity is getting ready to bubble up in a bigger and more meaningful way. How are you thinking about that as you do sit on a pile of cash? Well, Morgan, I think the reality is that, you know, under the current administration, a large company such as Adobe, there was a heightened degree of scrutiny. We still believe that, you know, the Figma was an adjacency, but we've put that behind us. But to your point,

we have access to capital. We have a phenomenal brand. Right now, though, I'm so excited about all the organic innovation that we have. We may look phenomenal brand. Right now, though, I'm so excited about all the organic innovation that we have. We may look for smaller technology companies that supplement our offering. But to your bigger point, I do think, you know, depending on how the FTC and the DOJ operate, that there will be more willingness and an appetite to do deals. It's unclear to me, though, Morgan, whether that changes how these are viewed outside the U.S., which, as you know, whether it's the British authorities or the EU, we still have to factor that in as people think about M&A. That's what happens when you're global.

Shantanu, thank you. Adobe's chair and CEO. We have a news alert on Microsoft. Kate Rooney has the details. Kate. Hey, Morgan, we are getting an 8K regulatory filing from Microsoft. They are forecasting a material second quarter impact from that investment in a self-driving company, Cruise. Microsoft disclosing an impairment charge of about $800 million related to Cruise. They do expect a negative EPS impact of about nine cents per share. Cruz is a self-driving unit of General Motors, which the company said this week it was shutting down. Some other information in the AK that was disclosed earlier in the week at the shareholder vote, including a rejection of a proposal to potentially invest in Bitcoin.

But that impairment charge weighing on shares a bit here, guys, after hours. Back over to you. All right. Kate Rooney, thank you. The ripple effects. Up next, Citi Research's director of U.S. equity strategy on why investors should hold on to their saddles and prepare for a volatile bull market in 2025. And later, Betterment CEO on whether her clients are all in on stocks even as the market hits new highs. Plus, Chewy shares under pressure in overtime after announcing a stock offering worth half a billion dollars, down about 3%. Be right back. Welcome back to Overtime.

Communication services and tech leading the market to new heights today with the Nasdaq closing above 20,000 for the first time. Meantime, Citi releasing its outlook for 2025, and it's largely bullish, but warning of volatility and uncertainty under Trump 2.0. Joining us now is Citi Research Director of U.S. Equity Strategy, Drew Pettit, Drew welcome. So your bear case is where I want to start just because it's down a thousand points which would be like 16.4%. What goes into your bear case? What do the bears need to look out for? Okay, so I actually love this as our starting question because when we look at the outlook,

we just think about how we're going to be wrong. Everyone wants to talk about this is my base case, this is what's going to happen. We come at think about how we're going to be wrong. Everyone wants to talk about this is my base case. This is what's going to happen. We come at this, how we're going to be wrong to the downside and upside. On the downside to us, it's a high valuation starting level that puts a lot of pressure on growth to deliver and very, very high sentiment levels. Not going to say bubbly, but I'm going to say very high. So we need a lot of good news to sustain that momentum in markets from here. But what's the bad news that actually takes it down?

Or is it just without the good news, it goes down a thousand points? So not a thousand points. That's fair. I would say if we lose a little bit of the operating leverage and the margin expansion that we've seen. So right now we are pricing in a lot for growth to accelerate. And that's, again, the EPS line, EPS, free cash flow, whatever below the number line you want. That's really going to be off of, let's call it 5%, 6%, maybe 7% top line growth. So, again, it's about margin expansion for the S&P to move higher from here and to really say that, yeah, I'm worth 24, 25 times. Consensus earnings estimates for next year are pretty lofty. I think the highest growth number I've seen in, what, a couple of decades, it looks like. So going back to your point, how much actually needs to go right to see that level of growth,

that level of margin expansion, especially as you do have trade policy in the mix, you do have inflation that seems to be pretty sticky in a Fed that maybe isn't going to cut as much as everybody thought even just a month ago. Yeah, so it's funny. It's a little bit two-sided on the inflation front because we always talk about, oh, inflation is going to be bad, but we're talking about profitable companies. So if they can move price, again, that's like an inflationary backdrop

is actually margin expanding. But it's the productivity numbers that get really important. We just had that this week, and we had like 2% year-over-year productivity growth. That's against long-term expectations of like one and a half. So productivity is running high. That is great for equities, risk assets, corporates, even in an inflationary environment. So if we get into the details, what sectors, what part of the market are particularly compelling right now, especially as we've seen these rotations in and out of equal weighted S&P?

Now big tech is back in fashion here in recent trading sessions. I mean, what's going to do well in 2025 in this environment? Both. Okay. Not to really tease and joke about this, but really it's the growth side and the cyclicals. We like that barbell. It's kind of that middle where you don't really have cyclical tailwinds. You're kind of that muddle along type of company. And a lot of the defensives kind of fall into that. So I think cyclicals coming off pretty low expectations, we should see earnings

rebound there, especially on the consumer side, like that more than the industrials. And on the growth side, we think a lot of the earnings and sales trends, that's real, that's structural, not so much cyclical. So barbell those two, and you can play both sides of this rotation. And I don't really think you just need to buy those defensive kind of slow consistent growers in the middle. Okay Drew Pettit of Citi thanks for being here with us on set. Thank you. Well we have a news alert on Kroger and Kate Rooney has those details for us. Hi Kate. Hey there Morgan. So Kroger is initiating a 7.5 billion dollar share buyback a 5 billion dollar accelerated repurchase, also reiterating in a press release here, a commitment to lower prices. All of this, guys, in light of the failed merger with Albertsons, which was supposed to be the largest supermarket deal in history, roughly $25 billion deal.

A judge did block that deal yesterday. Albertsons formally terminated that proposed deal, filed a lawsuit as well against Kroger, saying that it violated its contract, didn't follow through on commitments to help get that deal done. There is a quote here from CEO Rodney McMullin talking about Kroger being in a position of strength, looking forward to alternative profit and other sides of the business. And the balance sheet looking strong talks about the sustainability of the business model as well. We can see shares up almost 2% on this news. Back over to you. Okay. Kate Rooney, thank you.

We should also note Northrop Grumman's board just authorizing a new $3 billion share buyback. That increases the authorized amount to about $4.2 billion, according to the company. And those shares are unchanged right now. But, John, this is another one of those names, very strong free cash flow and not a whole lot of ways to return that capital shareholders other than through share buybacks and dividends. But M&A, right? We'll see maybe what that means for the defense industrial base come 2025 as well. One of the many sectors to keep an eye on. Yeah, for them, too.

Well, time for a CNBC News update with Bertha Coombs. Bertha. John, the House is voting on an $895 billion defense spending bill today that would include a double-digit pay raise for about half of the enlisted military members. The House is expected to pass the bill despite Democratic resistance to an included ban on transgender medical treatments for children of military members if the treatment would result in sterilization. Brazilian President Luiz Inácio Lula da Silva will undergo another

medical procedure Thursday on his brain to prevent further bleeding. According to a local hospital, the 79-year-old head of state underwent emergency brain surgery this week. His doctor said it was the result of a bleed Da Silva suffered in a fall in October. And the auction of Tom Brady's jerseys, watch collection and other sports treasures fetched $9 million. The watches alone accounted for more than $4.5 million of Sotheby's The Goat Collection sale. The top-selling item at $1.1 million was the Rolex Brady was wearing when owner Bob Kraft told him he would be inducted into the team's Hall of Fame. I miss Brady. On the field, anyway. Back over to you.

Bertha Coombs, thank you. Brazil has a rate decision too, so she'll keep an eye on that. Speaking of Brazil, we are just moments away from a must-pass defense bill vote on the House floor. You just heard about it. Up next, why telecom and chip makers could actually be big winners from its passage. And shares of C3.ai getting hit hard today. J.P. Morgan downgrading the stock from neutral to underweight, citing valuation. C3 AI shares are up more than 60 percent since the start of September. We'll be right back. Welcome back to Overtime. The House of Representatives is voting right now on a key defense bill, the National Defense Authorization Act. Emily Wilkins looks at the potential winners and losers from this legislation. Hey, John. Well, yes, the House, now the vote is not done yet, so the bill is not officially passed, but they do now have enough votes for passage, more than enough votes, it looks like. In this legislation, it could have very serious implications for certain Chinese

companies. Now, this is a huge bill, $895 billion for the Defense Authorization Act, but some specific provisions really targeted on these Chinese companies. They would force lobbyists to choose whether they want to serve U.S. defense contractors or companies linked to the Chinese military. They can't do both. The bill also includes $3 billion for U.S. telecom companies to rip out and replace equipment made by Chinese companies, including Huawei and ZTE. Of course, it's not all bad for a lot of these Chinese organizations. Several tough-on-China measures that lawmakers have been working on this year did fail to make the final package. That includes a measure prohibiting American investment in Chinese technologies that could pose a threat to national security. Senator John Cornyn on the Senate floor yesterday said that lawmakers are going to continue to work on that legislation and hope to pass it in the future.

From advanced semiconductors to quantum computing to artificial intelligence, it's high time that the United States become serious about limiting the flow of U.S. dollars into the arsenal of our biggest strategic adversary. Another big winner here is actually the U.S. semiconductor industry. Of course, it got a huge boost to that chips bill that was passed the other year. And now this bill contains $500 million for a lot of those tech hubs, those regional centers in which they hope that a lot of research and development and the chips can be created. Now, this bill, once it passes, the House is expected to go to the Senate, pass there,

and then go to Biden's desk for his signature. Guys? I'm glad we're breaking this all down. And it's important to note, Emily, that when we're talking about the NDAA, we're talking about how the Congress crafts defense policy for the following year. But it doesn't actually mean that we've got a budget or any of the dollars have been allocated or appropriated. That comes later. But it seems to me interesting that we've got shipbuilding doing well again with this bill.

You've got aircraft XF-35, which was made by Lockheed Martin, boosted. F-35 deliveries are somewhat delayed until certain fixes are made. An East Coast missile defense site expected to be stood up by 2031 now. And then also concern again about 155 millimeter production shrinking. But it seems like a lot of the defense primes that we talk about, Northrop Grumman, Lockheed Martin, RTX, General Dynamics, HII, I can just keep going down the list here, are once again poised to benefit. Any sense of when you might start to see something like acquisition reform? Morgan, it's a great question. And I think a lot of that stuff we're going to be looking to that next Congress, to that unified Republican, if that is a priority for them. And certainly as they've talked about things like finding places to cut

funding, cut spending, that might be a place where they try to look at potential reforms. But I think at this point, it's a huge question of exactly what's going to happen. Certainly, Conservatives have always been a little hawkish on defence spending, so there is a chance that we don't see any decreases next year. Obviously, Republicans have a lot on their plate to do. This is one thing they're clearing off, but then even when it comes to government spending, the thing that is actually going to be funding all of this, they are kicking the can down the road. They had a December 20th deadline, but now it doesn't seem like they actually going to be funding all of this. They are kicking the can down the road.

They had a December 20th deadline, but now it doesn't seem like they're going to finalize that 2025 spending probably until March of next year. All right. Lots to watch here. Less than 2% of the DOD budget is actually going to software. So there's certainly room. Some of the defense tech companies would argue to increase. We'll see. Emily, appreciate it. We've got much more on the defense industry later when we discuss whether venture capital firms could be set to

invest billions more in defense technology in the new year. But first, Mike Santoli is going to come back and look at whether analyst opinions are starting to shift on three of the market's biggest momentum stocks right now. Be right back. Welcome back. Mike Santoli returns with a look at analysts' sentiment towards high momentum stocks. Mike. Yeah, Morgan, there's been so many kind of fast moving stocks that are levered to some of the most manic themes in the market that have just surged way beyond analysts' expectations. The decision then is, do you chase it higher with higher price targets and ratings, or do you fight the move? Robinhood, they have chased it. You see back here 10 months ago, only a small minority of buy ratings on the street when the stock was under

20. It was, right, 15. And now you have it around 40, and it's a majority recommending it. You see the price target there. It's that blue line that's really struggled to keep up with the stock itself. People are confident that the crazy fevered retail trading activity and the Bitcoin move are going to help this stock down the road. Whether that's true or not, that's been the justification. Now, there's other instances where stocks have come back to life like DocuSign and the street is just not really having much of it. Still a very skeptical consensus here. Very few buy ratings on DocuSign. Obviously, had pretty good results and then a jump in the stock higher. Generally, it's kind of a good

thing to have that reservoir of doubt on the sell side if the stock itself is performing well. But there's probably some short covering here. You have to see if sustained over a couple of quarters are benefiting from low expectations in the last quarter. Finally, Palantir, maybe the most extreme example of a very large market cap stock that's had an incredible run higher and has just blasted way above the consensus price target. Very few buy ratings. It's just tough to make the valuation work at these levels. It's also very much a lesson in how Palantir,

as a company, essentially markets to retail investors and just likes to have a lot of excitement among the public. And they're not as much trying to cultivate Wall Street. So we'll see how this one, this divergence, resolves itself if it does, John. I think he would have to visit more Motel 6s if he wanted to cultivate Wall Street. The CEO of Palantir there. Mike Santoli, thank you. I love that you just went there. Up next, the CEO of Betterment on how rising financial anxiety in the U.S. is impacting how workers invest for their retirement. Be right back.

Welcome back. The Nasdaq closed at a record high today after the November inflation report met expectations. But persistent inflation is weighing down U.S. workers and their plans for retirement. That's according to a new survey from financial advisory company Betterment. Joining us now is Betterment CEO Sarah Levy. Sarah, it's great to have you back on. And I do want to get into the results of the survey. But first, just given the fact that we do have stocks at or near record highs right now, you've come on for the better part of a year or two years and told us about how your investors that are engaged in the platform have been parking quite a bit of money in cash, in part because the rate of return has been so strong.

What are you seeing now? That's exactly right. I would say the cash story has been really an 18-month story. And in the last, call it six or eight weeks, we've started to see our customers come off the sidelines with cash and start to move back into the market, back into more of a risk-on kind of profile. We're seeing that both in equities and also in bonds. So sort of two ways to reenter the market. All right. Are you seeing it in cryptocurrencies as well? We are. In fact, in the fall, we launched a crypto portfolio, an ETF portfolio that has seen really nice, steady adoption. I think our customers tend to be a little more conservative. So dollar value is still low, but participation rate's quite high. Good to see you, Sarah.

So in your survey, you say Gen Z is the least likely to contribute to a 401k at 79%. Does that, you think, have to do with the unique cost of living crunch that younger workers face? Is there an attitude about the market? Do you have a sense of that? Look, there's a good news, bad news story going on, I think, in the retirement space. One reason Gen Z is participating at lower rates, I think, is because they're just earlier in their financial journey. And as you know, cost of living is high, right? And so, you know, this is not the first thing on people's list in terms of where they're going to put their dollars when they're younger.

And I think as they mature, they realize, you know, it's more important to participate. I think what we are seeing, though, that's incredibly exciting is that access is really increasing to retirement and participation is increasing kind of overall. And so I think a rising tide lifts all boats and that that will be a great kind of long-term place to start. What to do about this gap with small business workers and their retirement plans? Well, I think, you know, historically, if you worked for a big company, you had access to retirement. If you worked for a medium-sized company or a small company, those were not as available to you. The government has done a lot, actually, with the SECURE Act to sort of push forward this idea that employers need to

participate in their employees' retirement and in setting them up for a strong future. And so that's, I think, what we have to thank for the idea that now companies like Betterment have introduced affordable solutions for smaller and smaller companies, raising the profile of retirement, raising the profile of the importance of starting early. And so I think the gap is closing. But this is a long story, right? And particularly for Gen Z. And what does it mean for because you and I have had these conversations about all the white space that has existed and how much room or I guess I should say lack of offerings there have been in the marketplace for this up until recently, at least perhaps.

So what does it mean in terms of a growth opportunity and a business opportunity for Betterment? So, you know, we're incredibly excited about the white space. If you think about the fact that nearly 50 percent of workers in the U.S. work for small and medium-sized businesses. And historically, more than half of those workers have not had access to an affordable retirement solution. I think what's most exciting is not only that we now have those solutions, but that education is getting much broader, both with employers and with employees, about how important it is to have retirement as part of their benefits package. And so I think what's exciting is employees are asking for it.

They're further asking for a match and employers are meeting that need. Sarah, how is the robo-advisor model doing at helping retail investors to buck that historical trend of, you know, getting scared and, you know, buying high and selling low, especially as we've had this rally that's had a few head fakes? Look, I mean, the good news about what we preach, right, in terms of advice is slow and steady. It's, you know, I like to call it eat your vegetables, but it's really about dollar cost averaging. It's about having a plan, setting goals. All of that doesn't change whether the market goes high or low. And I think having a plan, setting goals. All of that doesn't change whether the market goes high or low. And I think in some instances, actually, maybe folks may have been too reticent and too eager to leave cash on the sidelines because of those high headline rates

really said to people, like, let's put our cash here because of the volatility. But I think what we're seeing now as the market kind of soars is if you have the patience and a long-term outlook, it's better to be invested. And that's really what we're seeing with our customers and what we seek to advise our customers on. All right, Sarah Levy of Betterment, thank you for being with us. Always great to have you. Thanks. Up next, why billions of dollars from Silicon Valley could be unleashed on the defense industry under the incoming Trump administration. Stay with us.

Take a look at shares of Adobe now down more than seven and a half percent here in overtime. Conference call kicks up, kicks off at the top of the hour. Morgan, CEO Shantanu Narayan was on with us before the call telling us that FX, the strong dollar, factors heavily into that guide, which is probably the reason why things are down. We'll see if on the conference call he and others expound on that. The dollar is so strong based on some metrics right now, the strongest it's been in decades with expectations that that could continue. So we'll have to watch it. Well, we're something else we're watching right now is defense. Once relegated to the shadows of Silicon Valley, defense tech is going mainstream.

And with many a growing number of entrepreneurs and investors in the sector working with the incoming Trump administration, the momentum is poised to continue. So it's a stark shift from just six years ago when Google employees protested U.S. military work and defense companies were classified by funds as quote-unquote sin stocks. Catherine Boyle was early to this investing trend, a general partner at A16Z. She co-founded the venture firm's American Dynamism practice in January of 2020. And she says this has been a long time coming. So 10 years ago, former Secretary of Defense Ash Carter put out the call with Defense Innovation Unit saying we have to bring Washington to Silicon Valley. And I think planting that flag from the DOD was really important because it showed that there was a seriousness of there are people inside the department that want to see change. But there's a lot of things that I think happened. It was the success of SpaceX, the success of Palantir.

You know, I always joke, people looked back at SpaceX in 2019 when they were talking about Starlink, and investors said, how is that ever going to work? And now look at SpaceX today. So I think there's a lot of things on the success side of the companies that were being built, the enthusiasm from the DoD. Ukraine changed everything,

because when I think these young engineers watched a real land war happening in Europe, they looked and said, OK, we actually need to build defense technology. This is real now. It's not just theoretical. It's something we actually have to focus on. And so when you put all that together, there was just this explosion of new founders, new finance, people putting real capital behind these businesses, and then success stories. So Boyle, who joined me exclusively from the Reagan National Defense Forum last weekend, notes some of the hottest defense startups, Andral Industries, Shield AI, which are both Andreessen Horowitz investments,

they're nearly a decade old. And they, plus Palantir, have already helped to send a new generation of entrepreneurs into the business world with startups like Apex Space, which makes satellite buses and Ceronic, which makes unmanned ships for the Navy, also receiving A16Z funding. Well, Boyle thinks private markets, like the public ones post-election, are also poised to see the unleashing of animal spirits. I actually think in Q3, Q4 of this year, private markets were pulling a little bit back. At least that's what we were seeing. I think people were sort of wait and see, let's see what happens. And then, as you said, there is sort of this euphoria in the public markets and in the crypto markets. We've seen major rallies. And I think you're going to see that in Q1 of this

upcoming year. You're going to see a lot of venture dollars going into categories that otherwise would have people would have said, you know, maybe there's too much regulation, too much uncertainty. I think you're going to see private capital come roaring back to private markets. And there are a number of sectors. Energy is another one to watch, for example. But it all comes as SpaceX is now valued at $350 billion based on a secondary share sale, which puts its valuation higher than any defense contractor. And among the top 25 in the S&P 500 by market cap. So we talked about Tesla to start off the show. Now we're finishing by talking about SpaceX, John. Yes. And in between, we talked about Adobe. We talked with

Adobe's CEO. That stock is lower here in overtime. The call is coming up. This is an interesting one because of how early they were to AI, but also how there's not a lot of hype around it. Yeah. Meantime, Brazil just hiked rates greater than expected. Tomorrow, you get the Swiss bank expected to cut, ECB expected to cut. That does it for us here at Overtime. Fast money starts now.